Maturation and proliferation of prethymic T-progenitor cells to mature lymphocytes depend on regulatory mechanisms in the thymus where the T-progenitors must interact with non-lymphoid, epithelial cells to be able to differentiate. The thymic epithelial cells provide a specific microenvironment capable of directing proliferation and maturation. It has been shown previously in mice that during the early phase of M-MuLV induced lymphomagenesis prethymic stem cells of the T-cell lineage derived from blood-forming tissues accumulate in the thymus where they encounter a differentiation block; subsequently, uncontrolled proliferation of the stem cells will lead to generalized lymphoma. The aim of this study is to elucidate the mechanism of the intrathymic differentiation block of prethymic lymphoid stem cells that gives rise to systemic malignant lymphoma of the Thy- cell type. In vivo experiments, using the Moloney virus-induced lymphoma in the BALB/c mouse as a model, have been performed and the phenotype and distribution of the major thymic cell populations have been characterized at different stages of tumorigenesis by light and electron microscopy. Immunofluorescence studies for the presence of thymopoietin II and serum thymus factor were carried out to determine the functional state of the epithelial cells. The results of our experiments show that the reticular epithelial cells of the thymus, which provide a microenvironment necessary for the differentiation of prethymic stem cells to lymphocytes of the T-lineage, are a prime target for transformation as these cells undergo phenotypic changes and are rendered functionally defective prior to lymphoma development. It is suggested that incompetent epithelial cells cause the progressive accumulation of non-differentiating T-cell precursors producing a dysregulative lymphoma.